What is Homeowner's Insurance and Do I Need It?

Home buyers, especially first-time home buyers, often ask if they actually need homeowners insurance and I get it. With the variety of expenses that come with the purchase of a home, it's natural to want to find ways to save money any way you can.

But the bigger question is, do you want to save a little money now or a lot of money later? In this post, we'll go over what homeowners insurance is, what it protects, and answer the question of if you need it in the first place.

What is homeowners insurance?

photo by Marian Florinel Condruz

Homeowners insurance is a type of insurance that protects your home and the things inside it. If damage is caused to your house from things like a fire or a flood, homeowners insurance can help pay for repairs or replacement.

Homeowner's insurance also covers liability issues related to injuries that happen on your property. For example, if someone trips over an icy patch in front of your house and breaks their arm while visiting, you could be held responsible for damages related to that accident. Liability coverage will help pay for those costs if they are deemed yours.

It's important to note that there are two different types of homeowner's policies: Actual Cash Value (ACV), where the value of items covered by your plan is based on how much they would cost today; and Replacement Cost Value (RCV) where the value is based on what it would cost today to replace damaged items with brand new ones.

What does homeowners insurance cover?

photo by Laura Rivera

Personal property coverage: This pays for the items you own that are damaged, lost, or stolen from your home. These include electronics, furniture, clothing, and appliances. The reimbursement can be in two forms, full replacement value or actual cash value after depreciation. In addition, there may be higher premiums or the need to add coverage for higher-value items like fine art and jewelry.

Personal Liability coverage: If someone gets injured on your property, this helps cover some of their medical expenses and other costs associated with their injuries. It will also help pay for legal expenses if you're sued for the injury.

Loss of use coverage: Helps cover unexpected costs related to living in a temporary home while yours is being repaired after a covered claim. For example: if your pipes burst, this would pay for hotels or rental cars if you're unable to continue living there while repairs are completed.

What's not covered by homeowners insurance?

photo by Michael Jin

A typical homeowner's insurance policy will usually cover the majority of situations in which a loss occurs. However, there are some that are almost always excluded including natural disasters, acts of war, and "Acts of God".

Some additional exclusions you may encounter could include earthquakes, landslides, and sinkholes. Infestations from pests, fungus, and mold. Flooding from drains or sewer backups, intentional damages and wear, tear, and neglect.

While some of these things are typically excluded, you may have the option to add riders to your policy to cover things like earthquakes, flooding, and even sewer and drain backups - but they'll typically be an extra charge.

Terry Murphy, from Alliance Insurance Services, an independent agency in the Charleston, SC area has this to say about insuring your home in the Charleston area: " [South Carolina] has plenty of coastline that is prone to wind, hurricanes, hailstorms, and flooding. These types of storms can cause serious damage to homes over a very short period of time. Insurance in these areas can be a bit confusing."

Terry goes on to say that it's possible you may need three separate policies to insure a home in coastal areas: Flood, Homeowner's Insurance, and a wind/hail policy. "Flood insurance is almost always a separate policy and is not covered by homeowner’s insurance." Terry says, "Most flood insurance is written through FEMA/NFIP; however, several private market carriers now write flood insurance."

How much does homeowners insurance cost?

A recent NerdWallet.com analysis found that the average cost of homeowners insurance is around $1,784 a year.

It's also important to remember that while insurance companies provide coverage and payout for claims, they're also a business and need to make money. So, similar to mortgage lenders, insurance companies will assess the level of risk they'll need to assume to provide you coverage. They'll look at several factors to determine this:

1. The age of your home and its major components like the roof, HVAC, etc.
2. Homes in locations with high crime rates, strict building codes, and building costs.
3. Areas prone to major weather events or natural disasters such as floods, hurricanes, earthquakes tornados.
4. Past claims you've submitted related to the property and their frequency
5. Your credit
6. Even claims submitted by a previous homeowner can affect rates depending upon how recent they were made.

A few other things to consider in terms of cost - If you own items of high value, the additional coverage needed can add to your cost and the amount of your chosen deductibles will affect your premiums, too.

In addition, a standard home insurance policy may not include wind/hail coverage. Terry Murphy from Alliance has this to say about cost; " Generally speaking, whether a separate wind/hail policy is required or if it is included in the standard homeowner’s insurance, it will be subject to a higher 'percentage' deductible...For example, if you are carrying $400,000 coverage on your property and you have a 2% wind/hail deductible, the actual deductible would be $8,000. The 'all other peril' deductible on your homeowner’s insurance policy applies to covered losses other than wind/hail."

Finally, it's important to review your coverage over time since it's likely you'll acquire additional items for your home, sell them, etc.

How can you save on insurance costs?

photo by George Becker

If you find that your insurance costs are too high, there are some ways to uncover some savings. For example, bundling home and auto insurance policies can provide discounts from a number of insurers.

Having existing or installing safety features in your home can also provide savings like alarm systems and/or deadbolt locks.

So, Do I need Homeowner's Insurance or what?

The short answer? No.

You aren't legally REQUIRED to carry homeowners insurance, but if you have a mortgage or are applying for a mortgage your lender is going to require you to carry it. This is because your lender wants to protect their investment in case something were to happen to the home before you pay off your loan.

Even if your home is paid off, insurance on your home is just a good investment to make. Everyone's situation is different, but most people don't have the resources to pay for repairs if their home is damaged or rebuilding if their home is destroyed. Your insurance premiums will be far less than a new home.

Some other things to consider, if you purchase a condo, mobile home, or similar, you'll likely be required to carry insurance. Your condo or other associations may require homeowners insurance as well, so it's important you research and ask those questions.

How can I get a quote for homeowners insurance?

• Get quotes from multiple companies. And as Terry Murphy says, "When comparing insurance quotes, it is very important to make sure that you are comparing apples to apples on not only the coverages but the deductibles, as well."
• Check the company's reputation and financial stability.
• Check to see if they have a wide selection of policy coverage options for your area/location/home type/etc., with different limits and deductibles for each option so you can choose the one that fits your needs best without breaking the bank.

Conclusion

I hope these tips help you feel more confident about homeowner's insurance for your home and the protection it provides for you and your family. And even if you've had a perfect track record with zero incidents involving your home, in this instance, it's better to err on the side of caution and have coverage just in case.

If you want to learn more about other types of insurance or how much homeowners insurance might cost, just give me a call!

  Ashley.Melton@AgentOwned.com  |  www.CharlestonPalmettoHomes.com  |  843-670-2333